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Fed tries to hold on to consumer-protection authority

July 22, 2009 |  1:47 pm

Do you trust Ben S. Bernanke to protect you from potential rip-offs in the financial services business?

In testimony before the Senate Banking Committee today, the Federal Reserve chairman suggested that Congress could strengthen the central bank’s commitment to consumer protection by making that a third formal goal of the Fed.

By law, the Fed now has two main goals: keep inflation low and keep employment high (things aren’t working out so well with the latter this year).

Benbern Under questioning, Bernanke conceded that the Fed was "not quick enough, we were not aggressive enough to address consumer issues earlier in this decade." Subprime mortgages naturally come to mind.

Nonetheless, Bernanke said Congress should consider putting "consumer protection in the Federal Reserve Act along with full employment and price stability as a major goal of the Fed."

The central bank chief clearly is fighting to hold on to Fed turf: The Obama administration’s idea is to take oversight of consumer financial services away from the Fed entirely and create a Consumer Financial Protection Agency.

At a rally today, House Financial Services Committee Chairman Barney Frank (D-Mass.) lashed out at bankers who are fighting to jettison the concept of a new consumer agency and instead keep the regulatory status quo. Opposition in Congress has forced Frank to delay taking up the idea in his committee until September.

From Reuters:

Frank said at a news conference that the banking industry wants "to have a big national debate over this and so that's what we're going to have.... There will be a summer-long debate."

As for the Fed, it "will be the biggest institutional loser when we set this up," Frank said.

-- Tom Petruno

Photo: Fed Chairman Ben S. Bernanke on Capitol Hill today. Credit: Karen Bleier / AFP/Getty Images